Budget update to signal election at hand

Federal Treasurer Chris Bowen has promised to release a budget update before the federal election.

If nothing else, it will signal the start of the official election campaign is not too far away.

Bowen confirmed this week he and Finance Minister Penny Wong would release an Economic and Fiscal Statement taking into account changes to the parameters set out in the May budget.

His predecessor Wayne Swan did the same in July 2010. Former prime minister Julia Gillard called the 2010 poll three days later on July 17.

This year's statement shouldn't be confused with the official pre-election economic and fiscal outlook - which is an independent Treasury and Finance departments assessment released within 10 days of the writs to dissolve parliament.

Bowen has already given a few hints about what the government's statement might say. He's described Swan's budget settings - a return to balance in 2015/16 and a surplus in 2016/17 - as broadly right.

"It is the right strategy. I think it is justified in economic terms to stick to the plan of returning to balance and then surplus," he told the National Press Club last week.

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The upcoming statement will include the impact to two major policy changes announced by Prime Minister Kevin Rudd on asylum seekers and carbon pricing.

The regional resettlement deal with Papua New Guinea is being costed and funded.

The plan to move faster from a fixed carbon price to an emissions trading scheme (ETS) is estimated at a cost of $3.8 billion over four years. This will be offset by saving measures such as changes to the fringe benefit tax arrangement for car forecast to raise $1.8 billion, Labor says.

The statement is also likely to reflect the impact of the Australian dollar, which has fallen dramatically against the US dollar since May.

The economic assumptions in the 2012/13 budget were based on an exchange rate of around 103 US cents and a trade-weighted index (TWI) based on a basket of currencies of around 74 points.

This week the local dollar was trading close to 93 US cents, and an index of 71 points.

Reserve Bank of Australia (RBA) research says a 10 per cent fall in the Australian dollar can add about one per cent to inflation over a three-year period.

If so, the annual consumer price index forecasts are likely to be revised up from the 2.25 per cent forecast for the 2013/14 and 2014/15 financial years.

However, it should also be noted the earlier move to an ETS - and a carbon price of around $6 per tonne rather $24-$25 - should take 0.5 percentage points off the inflation rate.

Commonwealth Bank of Australia chief economist Michael Blythe expects the government to downgrade its forecasts for gross domestic product (GDP).

"It would be surprising if they didn't cut their real GDP forecasts a bit," Blythe told AAP.

Bowen recently attended his first G20 Finance Ministers meeting and his counterparts confirmed fears the world economy was facing "serious headwinds".

Europe is still in recession and China, along with other emerging economies, isn't growing as fast as expected.

"These emerging economies were expected to be the engine room of growth," Bowen said.

Rudd and Bowen have repeatedly said the mining investment boom is over.

Blythe says while the sector appears to have peaked earlier than expected, the switch over to non-mining led growth isn't happening fast enough.

"We are getting what we want, but it's not going to be a seamless handover," he said.

This means GDP could decline to around 2.5 per cent in 2013/14, from a forecast 2.75 per cent, and to 2.75 per cent in 2014/15, from three per cent.

If so, the jobless rate forecast could be raised to six per cent from 5.75 per cent.

But Blythe also expects nominal GDP - which gauges company profits and tax paid to government - could be increased due to a weaker dollar and still relatively high trade-weighted index.

A one per cent fall in the TWI can add almost $2 billion to the budget bottom line over four years.

In the first 11 months of the last financial year, 2012/13, the budget deficit was running at $14.9 billion, rather than the $16.3 billion predicted, the latest figures show.

If the trend continues, the budget could end up in better than expected shape.

"You may not see as much damage to the bottom line from lower growth forecasts if their nominal GDP numbers look more respectful ... because of the Aussie dollar," Blythe said.